Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Southern Man delivers Speights ad budget

Southern Man delivers Speights ad budget

15 May 2014

Budget 2014 has Bill English’s Speights-style “Southern Man” brand written all over it. It is prudent, pragmatic, steady, unexcitable.

English can point to the impending achievement of his two fiscal objectives – bringing the budget back into the black and beginning to unwind the debt legacy of the Government’s GFC and Christchurch responses – but the budget tone is downbeat, even dull.

The Government will continue to provide “careful stewardship”, containing spending increases within safe monetary policy limits with, perhaps, scope for some “modest tax reductions” at some unspecified future time (although the Prime Minister has already indicated that tax cuts will be part of National’s arsenal in the coming election campaign).

Fiscal forecasts

The budget forecasts a whisker-thin surplus of $372 million in the financial year ended June 2015, with surpluses in the following years of $1.3 billion, $2.4 billion and $3.5 billion.

Core Crown debt, after peaking at 26.4% of GDP in 2014-2015, is forecast to begin tapering back in 2016 to slide below the Government’s 20% target by 2020.

This is despite the fact that the budget has increased the spending allowances for future budgets to $1.5 billion a year in 2015 and thereafter (with an additional 2% on top in each successive year). This formula produces quite a strong accumulator effect, resulting in an aggregate figure of $6 billion in 2018 (enough to finance a quite significant tax cut).

Economic forecasts

As English observed, this is his sixth budget and the first one in which the focus is on managing a growing economy rather than nursing a faltering one through a domestic recession and the GFC.

The budget growth track (March years) is for growth of 3% this year, 4% next year and 2.1% in each of the two subsequent years. Unemployment is projected to drop below 5% of GDP by 2017 and inflation to remain within (although at the upper end of) the RBNZ’s target range throughout the forecast period.

The upside and downside risks to this scenario are: the size and pace of the Canterbury rebuild, the size and duration of the current upswing in immigration, terms of trade and exchange rate movements and household savings behaviour.

Business initiatives

The Business Growth Agenda (BGA) package attempts to do a lot with a little. All increases are over four years:

• $53 million to create three new Centres of Research Excellence (plus a fourth new CORE funded from existing appropriations)

• $57 million in contestable funding for science and innovation

• $38 million to raise tuition subsidies for science and the agriculture and health sciences, and the already announced

• $69 million ($55 million new, the rest reallocated) to increase NZTE’s presence in China, South America and the Middle East.

R&D

The budget announces proposals to:

• allow an immediate refund of tax losses incurred by R&D intensive start-up companies. Many such companies never get into profit. Unless they are part of a larger profit-making group, their losses disappear when the business is wound up. Those that are successful are often engaged in significant equity raisings, which can also eliminate tax losses if they cannot be used as incurred, and

• expand the deductibility of R&D expenditure. In particular, it will allow a tax deduction for otherwise non-deductible R&D that has been capitalised then written off for accounting purposes.

These measures, which are proposed to take effect from the 2015-2016 year, may pre-empt Labour’s plan to re-enact the 2.5% R&D tax credit, which the National-led Government scrapped shortly after it was elected in 2008. Legislation to enact these changes is anticipated shortly after the election, if National still holds the reins.

Business will also benefit from:

• lower ACC levies – the reductions are expected to be in the order of $480 million in 2015-2016 although the precise allocation will be decided later in consultation with ACC, and

• the $375 million interest free loan to the New Zealand Transport Agency to accelerate $815 million worth of projects in the Auckland region.

But….

…given that capital markets are one of the six policy areas under the BGA banner, it was disappointing to see that they received so little policy attention in the budget.

Chapman Tripp, for example, would have liked movement in the budget on the outdated restrictions in the Income Tax Act over the amounts employees can borrow from a company under an IRD-approved share purchase scheme. The current limits are extremely low and have the potential to frustrate provisions in the Financial Markets Conduct Act to encourage employee share offers as a way for start-up or early stage companies to retain skilled staff when they cannot compete on salaries against more established competitors.

Paid parental leave

As expected the Government has expanded Paid Parental Leave (PPL) by:

• increasing the entitlement from 14 weeks to 18 in two two-week steps on 1 April 2015 and 2016, and

• extending eligibility to “Home for Life” caregivers and to seasonal and casual workers.

These changes are expected to cost $172 million over the next four years.

Housing

National has a busy programme of supply-side policies to address housing unaffordability. The budget does not bring much new to the mix except for a removal (described as temporary for “technical” reasons but by implication expected to be permanent) of duties and tariffs on imported building materials. It is estimated that this could reduce the construction cost of a standard New Zealand home by $3,500.

Christchurch

The budget also shows the Government is nervous about the mood in Christchurch. The budget allocates another $50 million in the next two years for CERA and notes that the Government is already paying an estimated $9 million every working day in rebuild invoices.


© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Gongs Got: Canon Media Awards & NZ Radio Awards Happen

Radio NZ: RNZ website The Wireless, which is co-funded by NZ On Air, was named best website, while Toby Manhire and Toby Morris won the best opinion general writing section for their weekly column on rnz.co.nz and Tess McClure won the best junior feature writer section. More>>

ALSO:

Pre-Budget: Debt Focus Risks Losing Opportunity To Stoke Economy

The Treasury is likely to upgrade its forecasts for economic growth in Budget 2016 next week but Finance Minister Bill English has already signalled that more of his focus is on debt repayment than on fiscal stimulus or tax cuts... More>>

ALSO:

Fulton Hogan's Heroes: Managing Director Nick Miller Resigns

Fulton Hogan managing director Nick Miller will leave the privately owned construction company after seven years in charge. The Dunedin-based company has kicked off a search for a replacement, and Miller will stay on at the helm until March next year, or until a successor has been appointed and a transition period completed. More>>

ALSO:

Gordon Campbell: On Electricity, Executions, And Bob Dylan

The Electricity Authority has unveiled the final version of its pricing plan for electricity transmission. This will change the way transmission prices (which comprise about 10% of the average power bill) are computed, and will add hundreds of dollars a year to power bills for many ordinary consumers. More>>

ALSO:

Half Empty: Fonterra NZ, Australia Milk Collection Drops In Season

Fonterra Cooperative Group says milk collection is down in New Zealand and Australia, its two largest markets, in the first 11 months of the season during a period of weak dairy prices. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news